Abstract
The public interest in enhancing those key development factors consisting of savings and investments deeply influences the Italian law system on banking and financial markets in general as well as legislation on crisis prevention and management in particular. The ratio of a strengthened state intervention in this sector is aimed at reducing the probability of a systemic crisis, avoiding losses in economic welfare that follow a banking crisis, minimising taxpayer exposure and safeguarding the trust and confidence of investors and savers. Banks, as well as financial and investment intermediaries, are commonly considered not only — and not always — to be “too big”1 (which is more true for multinational banks, less so for small domestic ones), but also — and more often — “too interconnected”, “too important” and “too complex” to fail.2 Those are enterprises whose critical functions are such that their unexpected liquidation would cause severe adverse consequences for the rest of the financial system and global economy. Thus, the guiding regulatory principle of faith in the free market and its self-corrective nature, which was strong and pervasive in other systems during the last few decades,3 was therefore considered by the Italian legislator to be not sufficient alone to ensure the stability of the financial and banking system.
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Notes
G.H. Stern and R.J. Feldman, Too Big to Fail: The Hazards of Bank Bailouts (Washington, DC: Brookings Ins. Press), 2004.
T.C.W. Lin, 2010, Too Big to Fail, Too Blind to See, 80 Mississippi L.J., p. 355. The “too big to fail” theory has been often criticized: “if some banks are thought to be too big to fail, they are too big” (M. King, speech held at the Lord Mayor’s Banquet for Bankers and Merchants, London, 17 June 2009, available on the website http://www.bankofengland.co.uk./publications/speechs/2009/speech394.pdf) in the sense that they are too big to exist or that they should be subject to limitations as to what they can do, so that in the case of a failure of a large bank, the only concern for policymakers should be to lead it to an orderly winding down process. The Italian approach, however, starts from the different consideration that the wide range of interests involved in a banking crisis requires more advanced and effective tools for resolution, because in some circumstances and for certain financial institutions, continuity in the provision of key banking and financial services must be preserved.
See C. Wyplosz, International Financial Instability, in Global Public Good, I. Kaul, I. Grunberg, and M.A. Stern, (eds.) (New York: Oxford University Press), 1999.
Also A. Crockett, “Why is Financial Stability A Goal Of Public Policy?” in KC Fed. Ec. Rev., Fourth Quarter, 1997, pp. 5, 9.
As for the Italian approach, F. Capriglione, Crisi a confronto (1929 e 2009). Il caso italiano, (Padova: Cedam), 2009;
M. Cera, Crisi finanziaria, interventi legislativi e ordinamento bancario, in Studi in onore di Francesco Capriglione, (Padova: Cedam), 2010, p. 1195.
About the peculiar “public” functions of banks in particular, see E. Hupkes, “Insolvency — why a special regime for banks?” in Current Developments in Monetary and Financial Law, Vol. 3 (Washington DC: International Monetary Fund), 2003.
Legislative Decree no. 385/1993. Many of the instruments available nowa days in Italy can be traced back to the 1936–1938 Banking Law, which is still effective in the developed financial environment; for an overview in English, see L. Cerenza and E. Galanti, Italy, in M. Giovanoli and G. Heinrich (ed.), International Bank Insolvency. A Central Bank Perspective (London: Kluwer Law International), 1999. “As to the Italian framework for crisis management (…), despite its age, it is one of the most modern special resolution regime all over the world. It has proven fundamental for its flexibility in instruments and enforcement techniques. The same perception of its effectiveness has been sufficient to prevent bank run so far. Losses for depositors and uninsured creditors have been avoided, taking into account market and competition rules. Even in the two cases in mid 1990s, where public intervention turned out to be necessary, banks were sold to private entities and costs for taxpayers were not incurred”,
G. Boccuzzi, Towards a new framework for banking crisis management. The international debate and the Italian model, in Quaderni di ricerca giuridica della Banca d’Italia, no. 71, (Roma: Banca d’Italia), 2011, p. 262.
Art. 47, para. 1, Italian Constitution: “the Republic encourages and safeguards savings in all forms. It regulates, coordinates and oversees the operation of credit”. This provision “constitutionalises” the principles already expressed in the 1936–1938 Law on Banking, according to M.S. Giannini, Diritto pubblico dell’economia, 1977, Bologna, p. 205. An authoritative opinion considers that the object of constitutional protection consists of those “savings” which are destined to enter the economic cycle, since “savings” are not defended as such — right of property is already protected by Art. 41 of the Italian Constitution — but for their instrumental function to the distribution of wealth; thus, the protection of savings is pursued as “a mean to the goal”, where the goal is the defence of the currency’s value and stability and of the economic system as a whole:
F. Merusi, Art. 47 in G. Branca, (ed.), Commentario alla Costituzione, Rapporti economici, III (Bologna-Roma: Zanichelli-Foro It), 1980.
M.A. Carriero, La disciplina italiana in tema di gestione delle crisi delle banche e degli intermediari finanziari, in Ricerche Giuridiche, Vol. 2, no. 2, (Venezia: Ed. Ca’ Foscari), 2013, pp. 644–666. Another peculiarity of the Italian System is that the Bank of Italy is not only the supervisory and the resolution authority, but also the Italian central bank: thus, the Bank of Italy is the “lender of last resort”, who can grant that particular credit line called Emergency Liquidity Assistance (ELA), in the case of temporary liquidity problems of an otherwise solvent bank (see, on this subject, European Central Bank, The lender of last resort: a 21st century approach, www.ecb.int/pub/pdf/scpwps/ecbwp298.pdf). This has been considered as another instrument for exogenous solution of bank crises,
see S. Zorzoli, Le soluz-ioni esogene alle crisi bancarie, in R. Ruozi, ed., Le crisi bancarie, (Milano), 1995.
ABI, The ABI response to the Commission’s Communication “An EU Cross-Border Frame Work in the Banking Sector” Consultation’s questions, Rome, 20 January 2010, pp. 8–9, available at http://www.abi.it/DOC_Normativa/Vigilanza/Allegato%20crisis%20management%20draft%2020%20 gennaio%202010.pdf.
Authoritative opinions in literature do not consider Temporary Management as an independent procedure from the Special Administration, but a preliminary activity to it: A. Nigro, Commento all’articolo 76, in F. Belli, G. Contento, A. Patroni Griffi, M. Porzio, V. Santoro, Commento al d. lgs. 1° settembre 1993, no. 385, Testo unico delle leggi in materia bancaria e creditizia (Bologna: Zanichelli), 2003, II, p. 1228. Others believe TM is an autonomous instrument to be activated when the crisis situation is easily surmountable in a very short space of time:
F. Ferrara jr., Le banche e le operazioni di banca, in Scritti minori (Milano: Giuffrè ed.), 1977, III, p. 330.
See G. Boccuzzi, Towards a new framework for banking crisis management, about the breadth of the CLB provisions, leaving the supervisory authorities with the task of adapting and adjusting intervention according to the singular particular case. Regarding the opportunity to leave a wide range of discretion to supervision authorities within crisis management procedures, see R. Ayadi, E. Arbak and W.P. De Groen, Regulation of European Banks and Business Models: Towards a new paradigm? (Brussels: Centre for European Policy Studies), 2012, p. 80: “A key issue relates to rules versus discretion in the event of bank distress: the extent to which intervention should be circumscribed by clearly-defined rules (so that intervention agencies have no discretion about whether, how and when to act), or whether there should always be discretion simply because relevant circumstances cannot be set out in advance. The obvious prima facie advantage for allowing discretion is that it is impossible to foresee all future circumstances and conditions for when a bank might become distressed and close to insolvency”. Actually, the choice for this second model is a peculiarity of the Italian system. Nevertheless, it is worth specifying that the Italian discretion-oriented approach to intervention is applied a at a second level: the first level of intervention is the defined framework of rules settled by the CLB; the Bank of Italy has full power to act within this framework, insofar as the discretionary power is duly exercised (i.e. while respecting the proportionality principle, see below, no. 25).
The most relevant reason for subjecting crisis management procedure to public law is actually the role that public authorities are entitled to cover, according to Italian legal tradition: pursuing public and collective interest while balancing the different public and private interests involved, acting with administrative discretion, within the framework designed by the principles of legality, subsidiarity and proportionality. About the difficult balance between the protection of the systemic financial stability and the need to avoid moral hazard, see D. Siclari, Gli intermediari bancari e finanziari tra regole di mercato e interesse pubblico (Napoli: Jovene), 2011, p. 108. Also, the EU legislator of the BRRD adopted the same model: “The resolution authority shall be a public administrative authority or authorities entrusted with public administrative powers” (Art. 3, para. 2 of the BRRD).
“What makes banks most special is their vulnerability to the loss of public confidence. As a consequence, a ‘bad bank’ that enjoys the public’s confidence may operate in peace (at least for a little while) whereas a ‘good bank’ can risk failure if it becomes subject to a bank run and all its deposits are withdrawn on short notice. Depositors are not generally in a position to monitor and assess the financial condition of their bank on a continuous basis. Thus, any suggestion, even a rumour, that a particular bank is no longer in a position to meet its liabilities is likely to lead to a ‘bank run’”: A. Campbell and P. Cartwright, Deposit Insurance, Consumer Protection, Bank Safety and Moral Hazard, European Business L.R., 1999, pp. 96–102
and also E.A.J. George, “Are Banks still special?” in C. Enoch and J. H. Green, Banking Soundness and Monetary Policy, 1997, p. 251, p. 258. In this sense, it has been argued that SA has a “precautionary function”, since it is aimed at preventing the bank from being “left alone” and from moving toward an irreversible situation of crisis; see R. Costi, L’Ordinamento bancario, (Bologna: Il Mulino), p. 832. The author also recognizes an additional “sanctioning function” to the procedure, aimed at leading the entity toward compliance with the infringed rules and to punish the lack of respect of regulation.
The motivation of the minister’s decree could be considered as compulsory in relation to the obligation to state the reasons for any administrative measure laid down by Art. 3 of Law 241/1990 (Italian law on administrative procedures), in conjunction with the obligation to state reasons for the acts of public authorities laid down by the second paragraph of Art. 296 of the Treaty on the Functioning of the European Union and the third indent of Art. 41(2) of the Charter of Fundamental Rights of the European Union. Adequate reasons could be given for the minister’s decision of initiating a SA procedure, by referring to the Bank of Italy’s proposal; that is the case of a “per relationem” statement of reasons, see Council of State, sez. VI, 20 December 2012, judgment no. 6583, C 1881/2012 cited above (no. 27, for an application example). The motivation of the Bank of Italy proposals, as well as compliance with Law 241/1990, is compulsory according to Art. 24 of Law 262/2005, see B.G. Mattarella, Art. 23–24, in A. Nigro e V. Santoro, ed., La tutela del risparmio. Commentario della legge 28 dicembre 2005, no. 262 e del d.lgs. 29 dicembre 2006, no. 303 (2007), Torino, Giappichelli (ed.), 438–449. Like for any administrative provision, the minister’s decree and the proposal of the Bank of Italy can be appealed before the Administrative Court (TAR and Council of State for second/last instance), to challenge their substantive or procedural legality.
Only debts incurred before the suspension are non-payable during the suspension period; otherwise, the continuation of the business would be impossible and the purposes of the SA disregarded, see F. Capriglione, La disciplina degli intermediari e dei mercati finanziari, (Padova: Cedam), 1997.
A. Nigro, Crisi e risanamento delle imprese: il modello dell’amministrazione straordinaria delle banche, (Milano: Giuffrè), 1985, p. 77.
S. Satta, Istituzioni di diritto fallimentare (Roma: Foro Italiano), 1957, p. 26.
C.M. Pratis, La disciplina giuridica delle aziende di credito (Milano: Giuffrè), 1972, p. 295.
G. Ferri, Aziende di credito, in Enciclopedia del Diritto, IV (Milano: Giuffrè), 1959, p. 755.
G. Augenti, Amministrazione straordinaria e liquidazione coatta delle aziende di credito, in Dir. e prat. Comm. (1938), I, p. 280.
P. Ferro Luzzi, Art. 57 in Codice Commentato della Banca a cura di F. Capriglione, V. Mezzacapo (Milano: Giuffrè), 1990, p. 268 and R. Costi L’Ordinamento bancario, p. 832.
For an overview of the different opinions, see O. Capolino, L’amministrazion straordinaria delle banche nella giurisprudenza, in Quaderni di ricerca giuridica della Banca d’Italia, no. 30, (Roma: Banca d’Italia), 1993, p. 12.
In this sense, see O. Capolino, G. Coscia and E. Galanti, La crisi delle banche e delle imprese finanziarie, in E. Picozza and E. Gabrielli, Trattato di diritto dell’economia, (Padova: Cedam), 2008, p. 879.
In this sense, see G. Caradonna, La gestione provvisoria, in Commentario al testo unico bancario Ferro-Luzzi Castaldi (Milano, Il), 1996, p. 1229;
F. Ciraolo, Il modello della gestione provvisoria nella crisi dell’impresa bancaria, in Banca borsa e titoli di credito: rivista di dottrina e giurisprudenza, 2002, 1, p. 58; R. Costi L’Ordinamento bancario, p. 838.
In most European countries, insolvency law used to apply to banks as a lex generalis, while special rules or exemptions from the general regime applied by the specifics of bank insolvency (for instance, Belgium Austria, Germany, Norway, Switzerland and Luxembourg; Portugal has a special regime since 1992; UK adopted special rules with the 2009 Banking Act, previously: A. Campbell and P. Cartwright, Banks in Crisis: The Legal Response (Ashgate Publishing), 2002, pp. 154–159). For a worldwide overview,
see R. Bösch Homburger, Banking Regulation: Jurisdictional Comparisons, European Lawyer Reference (London: Sweet & Maxwell, Thomson Reuters), 2012.
J. Ashmead, In re Colonial Realty Co (1994), 60 Brooklyn L. R., pp. 517, 519.
Only requested by the p.p. or in its own; the request of one or more creditors, expressly mentioned for pre-CAL insolvency declaration, is not considered when the CAL procedure is ongoing. Doubts regarding consti-tutional legitimacy of this provision have been raised by some of the doctrine, for suspected violation of the fundamental right to equal treatment, see A. Bonsignori, Liquidazione coatta amministrativa, in F. Bricola, F Galgano and G. Santini, Commentario della legge fallimentare (BolognaRoma: Zanichelli –Foro Italiano), 1974, p. 174.
The declaration of the state of insolvency allows to proceed with bank-ruptcy claw-back actions under Art. 64, 65 and from 67 to 72 of the BL, which, on the contrary, are not applicable to CAL: Art. 80 CLB expressly states that the CAL provisions are the sole laws applicable and the BL applies as far as it is compatible (problems of coordination between the CLB and BL often arise, when it comes to concrete implementation; for an overview, see E. Sabatelli, L’accertamento giudiziario dello stato d’insolvenza delle banche alla luce della riforma della legge fallimentare, in Riv. dir. banc., (2012), p. 279). Since in ordinary bankruptcy procedures all the assets of the debtor’s estate are to be made available to his creditors, Arts from 64 to 72 of the BL also include in the estate other transactions made by the debtor before the declaration of insolvency. Thus, claw-back actions may be brought, for instance, for the anomalous transactions that harmed creditors in the year prior to the CAL decree and for the “normal” acts effected in the six months prior to the order, if liquidators prove that the counterpart of such operations knew the state of the insolvency of the parent company (Art. 67 BL, “bankruptcy claw-back action”). Without insolvency declaration, this is not applicable to banks under CAL (even if other claw-back actions, provided for by Art. 66 of the BL are possible, see below, no. 62), while the two years dies a quo is placed at the date of the CAL initiation (not of the insolvency declaration) when insolvency occurs.
Italian literature’s opinions about the function of the CAL procedures for banks are different. Some (see, for instance, A. Bonsignori, Liquidazione coatta amministrativa, p. 22) retain it is an insolvency procedure, removed from the applicability of common bankruptcy laws and devolved to the auspices of the public supervisor because of the public interests involved in the banking activity. Others submit that the CAL procedure is comparable to corporate law’s voluntary liquidation but with the public authority’s intervention, aimed at speeding up the procedure and at obtaining the dissolution and the elimination of the bank (in this sense, among others, see G. Ferri, Manuale di diritto commerciale (Torino: Utet), 1997, X, p. 623,
A. Castiello d’Antonio, Lineamenti della liquidazione forzata delle banche, in Diritto concorsuale amministrativo, (Padova: Cedam), 1997, p. 343). The savers’ interest is considered as a purpose of the CAL by R. Costi (L’Ordinamento bancario, p. 877), who describes the procedure as an instrument used by the legislator to extinguish those liabilities raised during the bank’s activity, in order to offer the collected savings (and indirectly the savings as a whole) a different protection from the one provided for by civil law. Thus, the CAL is not aimed at dissolving the company but at dissolving the banking activity, whereas the company could, after CAL, undertake any other business different from banking.
Art. 86, para. 7 CLB. The provision only refers to preferential creditors and not to ordinary creditors (also called “unsecured creditors” or non-preferential creditors). Doubts of constitutional illegitimacy of this provision raised, as the non-preferential creditors, including depositors, seem to be discriminated as for their possibility of appeal against other non-preferential creditors’ claims because of the secrecy of the non-preferential creditors list. The rationale for this disposition is inherited from the 1936–1938 Law on Banking, which protected banking secrecy, but it has been considered scarcely sufficient by some authors: M. Porzio, Il governo del credito (Napoli, Liguori), 1976, p. 140, R. Costi, L’Ordinamento bancario, pp. 865–866.
Some authors, retaining CAL not aimed at dissolving the company but at dissolving the bank (see above, no. 63), assume that the dissolution is only one of the possible outcomes of the CAL procedure and that the liquidation could be revoked by shareholders once all the creditors have been satisfied, in order to maintain the corporate structure and to undertake a different non-banking activity. The withdrawal of the authorization to engage in banking does not mean that the company is not able to engage in other businesses, as demonstrated by the provision on concor-dato preventivo (U. Belviso, La liquidazione coatta amministrtiva nel quadro di una riforma delle procedure concorsuali, in Giur. Comm (1979), I, p. 256; R. Costi L’Ordinamento bancario, p. 877).
The aim is strengthening internal coordination mechanisms and intensifying the powers of the special administrators or liquidators of the parent company with respect to subsidiaries and the enrichment of public informative sources on the group’s situation: M. Bianco and M. Marcucci, Groups and groups’ bankruptcy discipline in Italy, in Bank of Italy, Insolvency and Cross-border Groups. Uncitral Recommendations for a European Perspective? Legal Research, no. 69, February 2011;
R. Cercone, Le procedure per la crisi dei gruppi bancari, in G.Boccuzzi, La crisi dell’impresa bancaria. Profili economici e giuridici, 1998, p. 358.
As previously mentioned (see above, no. 50), in most jurisdictions, only normal (or a slightly adapted version of corporate) insolvency proceedings were available to banks. Such proceedings do not adequately take into account the special nature of credit institutions and thus are not suitable for limiting credit and liquidity losses in the economy as a whole in the case of failure; For a theory-based analysis of the differences between corporate and bank insolvency regimes, see R. Bliss, and G. Kaufman, U.S. Corporate and bank insolvency regimes: an economic comparison and evaluation, Working Paper Series, No 2006–01, 2006, Federal Reserve Bank of Chicago. On the contrary, one peculiarity of the Italian crisis management system has always been, since 1936, the provision of specific crisis and pre-crisis remedies (see above, para. 1).
The high profile national and cross-border bank failures in the last few years (including Fortis, Lehman Brothers, Icelandic banks, Anglo Irish Bank and Dexia) revealed serious shortcomings in the existing tools available to authorities for preventing or tackling failures of systemic banks, those that are intrinsically linked to the wider economy and play a central role in the financial markets. Besides, the ability of governments to support banks which are too big to fail with squeezed public finances has become increasingly unsustainable: governments had to introduce an unprecedented range of support measures, with the amount of aid offered to banks totaling around 30 per cent of GDP, and the amount of aid actually used reaching around 13 per cent. See Communication from the European Commission to the European Parliament, the Council, the European Economic and Social Committee, the Committee of the Regions and the European Central Bank, An EU Framework for Crisis Management In the Financial Sector, COM (2010) 579 final, 20 October 2010. For a detailed analysis of state support measures,
see S.H. Stolz and M. Wedow, Extraordinary measures in extraordinary times — public measures in support of the financial sector in the EU and the United States, ECB Occasional Paper Series, No 117,2010, Frankfurt. Although the final fiscal costs may well be lower than originally expected, any such government measures have the potential to contribute to moral hazard over the long term, thereby weakening incentives for market players to exercise general prudence. Therefore, a clear and comprehensive bank recovery and resolution regime — that covers both national and cross-border bank failures — was considered crucial for ensuring long term financial and economic stability and for reducing the potential public cost of possible future financial crises.
For a comprehensive description of EU’s new schemes of legislation, see S. Micossi, G. Bruzzone, J. Carmassi The New European Framework for Managing Bank Crises in Economic Policy, Centre for European Policy Studies Policy Briefs no. 304, 2013, Brussels.
The BRRD is informed by the principle of “moral hazard” in its new meaning, i.e. that those who may benefit from an economic arrangement (in the immediate case, shareholders and debt-holders) should also be exposed to the possible adverse consequences of that arrangement. This is evident in the description of the allocation of the losses and costs of a resolution program: the BRRD provides for so-called bail-in (from shareholders and debt-holders) rather than bail-out by a state. For an interesting overview on the evolution of the “lesson of moral hazard”, see T. Baker, On the Genealogy of Moral Hazard, Paper no. 872, Legal Scholarship Repository, 1996, University of Pennsylvania.
The corporate finance literature has pointed out the role of secured bank debt as an equilibrium response to the agency problems of equity financing; see D. Diamond, Financial intermediation and delegated monitoring, Review of Economic Studies, Vol. 51, 1984, Stockholm, pp. 393–414.
See also the discussion in A. Kashyap, R. Rajan and J. Stein, Rethinking Capital Regulation, in Federal Reserve Bank of Kansas City, 2008 Economic Symposium, Maintaining Stability in a Changing Financial System, pp. 431–471, available at http://www.kc.frb.org/publicat/sympos/2008/KashyapRajanStein.08.08.08.pdf
and in E. Avgouleas, and C.A.E. Goodhart, A Critical Evaluation of Bail-in as a Bank Recapitalization Tool, 2014, London, available at SSRN: http://ssrn.com/abstract=2478647.
This could occur, for example, when an institution under resolution might have some residual capital (according to the conditions for resolution, an institution would be failing or likely to fail if it has depleted all or substantially all of its capital). In this case, the resolution authorities could, after having allocated the losses to the shareholders and reduced or cancelled most of the shareholders’ claims, convert into capital subordinated and, if necessary, senior liabilities. This conversion will have to take place in a manner that seriously dilutes the remaining shareholders’ claims (while, in principle, shareholders claims should be exhausted before those of subordinated creditors; under the BRRD’s bail-in hierarchy, it is only when those claims are exhausted that the resolution authorities can impose losses on senior claims, see above, no. 139). About the complex and controversial aspects of the bail in, see S. Gleeson, Legal Aspects of Bank Bail-Ins, LSE Financial Market Group Paper Series, 2012, http://www.lse.ac.uk/fmg/workingPapers/specialPa-pers/PDF/SP205.pdf.
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Leggio, V. (2015). Italian Crisis Management Procedures in the Banking Sector. In: Siclari, D. (eds) Italian Banking and Financial Law. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, London. https://doi.org/10.1057/9781137507624_2
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